Honey, We Need To Talk About Venture Capital

It's not you... It's systemic capture.

Given the interest in my venture capital hot take in my last post, combined with the fact that this is forming quite a lot of my economic research at the moment on Chinese industrialization, here’s a whole brain dump on venture capital, and the full reason as to why I think it’s an organized racket!

TL:DR; Venture capital has evolved from funding innovation to engineering exits by constructing outcomes in partnership with the state. The result is a venture–industrial complex where private capital and public power have effectively merged, bringing the Western model of economic development incredibly close to the East’s!

Marc Andreessen

When people think of venture capital (VC), what usually comes to mind? Here are some buzzwords to elicit excitement in the subject I’m about to dive into:

• High-risk, high-reward

• Moonshots

• Unicorns

• Disruption

• “Move fast and break things”

• Zero to one

• 10x returns

• Risk capital

• Smart money (lol)

• “Founders first”

• FOMO

A VC fund is essentially a vehicle which raises money (often tens or hundreds of millions of dollars) from Limited Partners (LPs) - huuuuge pension funds, governments, insurance funds, retirement funds, university endowment funds — to invest into high-risk, but also high-reward, startups.

The idea is that you can “spray and pray” your way to multiplying the LP’s money by investing that capital into lots of bets that will statistically go nowhere, apart from one or two which will make so much goddamn money that your entire fund will be returned many times over.

Or so it says on the tin. But the reality couldn’t be more different.

I’m going to walk you through how VC, an asset class that started by taking on risk, became one that now spends billions ensuring it never has to take on any risk. And attempt to look at how most VC funds, largely unaware of how their own industry actually works, function like slow-motion Ponzi schemes.

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The way that you might think VC acts today is largely just a hangover of how VC actually started as an asset class many decades ago.

In the beginning, venture was small, scrappy, and had no repeatable model. The funds were lean (imagine the equivalent of a “search fund” today) and the founders were really, really weird. Risk wasn’t a bug that investors tried to get rid of, but the entire feature of the investment. Meaning that your job as a VC was to bet on the least corporate of the nerd outliers precisely because the market didn’t yet know how to price them.

So you went looking for the high-value weirdos hiding in a haystack of normal businesses, and you doubled down when you found them.

Now, think back to the early days of Silicon Valley, from the 1980s through the dot-com boom (~2000), where the biggest fund sizes are around $150 million.

This certainly doesn’t seem like a lot of money now, but these funds could take a dozen big swings and still win with a single asymmetric win (à la Google, Genentech, Amazon), which could return the whole fund many times over. For many of these investors, it was like printing money because they could go deal after deal!

So yes, the math worked because the markets were open and easy, the information asymmetry was very real, and the exit paths were accessible — IPOs happened all the time, and averaged the $160 million deal size. Venture capital, at its best, was capitalism’s most lucrative laboratory. It was small, experimental, and very often hitting home runs.

And back then, scale was the reward for risk. You earned your reputation by being early, contrarian, and (importantly) right about your “version of the future”. The defining aesthetic of the industry was discovery and the sense that somewhere, in a garage or a Stanford dorm, a small team was building the future just far enough in advance for you to stumble across it first.

But success, as it tends to, changed the math. Early venture partnerships were structured for asymmetric outcomes: small checks into unproven markets where variance was the point. Therefore a $100 million fund could write a dozen $5–10 million checks, lose out on maybe nine, and still be legendary if only one returned $3 billion. That’s what made the early model statistically incredible; the portfolio didn’t need certainty, it only needed a long tail. *Chef’s Kiss*

And then came the compounding of early wins into what we think of as VC today. However, once those early wins turned $100 million funds into $1 billion funds, the underlying arithmetic started to break down. Why? Because a fund ten times larger can’t simply do ten times more early-stage deals — there simply aren’t enough viable founders, nor enough liquidity events (startups being sold or IPOs) to absorb that volume of capital!

This is exactly why, when someone tells me “They raised a $150m fund to invest into Irish space startups!”, my face will drop — because there are not enough Irish space startups to absorb this investment. And this is not some theoretical hangup that is based on niche combinations of investments such as “Irish” and “space”; I remember over a decade ago working with a prominent VC fund which was exploring a $300mm fund for Australasia. It turned out that back then, there was just nowhere to “park” your $300 million in Australia in the expectation that it might be worth more than ten times that amount within five years.

Thus, the higher the growth of your fund, the more the distribution curve of returns flattens, and those returns concentrate. So the entire model of VC-as-an-asset-class shifts from optionality (I wonder if I should invest in that business?) to obligation (I have to invest in that business because I have to spend this money somehow!).

At that size, venture capital stops chasing the bold ideas it still likes to talk about and morphs into Big Venture: money that just wants predictable returns (also called yield-seeking capital).

Here are the main issues with these larger funds:

• Portfolio theory inversion: Large funds can’t afford variability in returns! Instead of high-volatility moonshots (maybe it will, maybe it won’t), they optimize for predictable multiples of returns

• Liquidity constraint: Late-stage rounds are required simply to deploy capital quickly enough to justify management fees. This is also called “investment fatigue”; you get so tired of deploying capital, which is hard, that you start investing larger amounts of it into shittier companies.

• Duration mismatch: LPs (pension funds, endowments) want steady returns that look like fixed income (bonds: nice and stable), not decade-long binary bets (this year it worked, last year it didn’t!).

• Signaling equilibrium: When every megafund piles into the same few “consensus winners,” valuations start to have little to do with market fundamentals, which is just a fancy way of saying BUBBLE creation.

In other words: success that compounded in Big Venture funds actually became a liability! The bigger the fund, the higher the fees for the managers, but the fewer companies that exist on earth could possibly grow fast enough, or big enough, to return that fund.

And with that, the logic of venture capital inverted, from risk-first to risk-never.

The entirety of the megafund theses can be reduced to:

Huge scale led to Big Venture megafunds which were suddenly so large that they faced global macro exposure for these funds; in turn this exposure demanded much more certainty around their investments; so this certainty required the funds to control the macro landscape to protect their portfolio.

Thus, the riskiest asset class in the world ended up run by investors who could no longer tolerate risk.

Ironic? Yes.

Policy Capital, not Venture Capital

As for the entirety of the financial markets, the 2008 financial crisis was the catalyst for venture capital’s growth. However, unlike other investment classes, the market didn’t collapse per se as the economy imploded, but it did change signficantly.

After 2008, as I’ve outlined several times recently in various other posts, the Federal Reserve dropped interest rates to near-zero in a drastic attempt to breathe life into the global economy, and within a very short amount of time, suddenly the world was awash in capital looking for yield again! (The great revival worked, it seemed. Perhaps too well…)

So who are the Limited Partners behind venture funds? Mostly pension funds, endowments, and sovereign wealth fund, and they suddenly needed somewhere to put their new money that the government had printed. Fast. The result of course was an overwhelming tidal wave of capital that flowed into private markets, including venture capital, private equity, private credit (more on that another time), and infrastructure.

For VC as an asset class, this was both a blessing and a curse.

Cheap capital moved in faster than any innovation (or enough startups) could absorb it. Now the problem was not just trying to find good startups (a question of quality), but how to find enough of them (a question of quantity). The old and trusted playbook of “early bets” and “asymmetric wins” couldn’t scale to the billions under management that VCs were starting to accumulate.

A new model had to emerge, one that replaced “market discovery” (funding innovation) with “market construction” (creating the outcomes yourself).

Enter the era of Venture Developmentalism, a topic of economic development that is absorbing most of my time right now.

In order to maintain their high returns despite having fewer startups to invest in, megafunds began doing what large institutions always do when the market stops cooperating with them. They moved upstream into policy; becoming the very thing they built a reputation on despising themselves.

And so this is what I mean when I talk about Big Venture; it is the top layer of the industry that now manages tens of billions of dollars yet operates more like a shadow industrial policy than an investment class.

Think about Sequoia Capital, Andreessen Horowitz (a16z), Founders Fund, Tiger Global, Coatue, SoftBank’s Vision Fund, and Khosla Ventures; these are all firms that are so large in an industry so competitive that they can’t rely on market discovery anymore. Therefore their scale forces them to manufacture outcomes, to build moats through regulatory capture, and eventually to align their portfolios with national policy.

Earlier generations of Big Venture learned this playbook the long way (by accident). But companies like Uber and Airbnb were the original stress tests for how far venture firms could stretch the law before rewriting it (which is why it’s so strange to hear Bill Gurley talk about how much he hates regulatory capture). So what began as regulatory friction (is this even legal?) became the template for how to turn organized non-compliance into a wave gigantic IPOs, mafioso style. And by the time those companies forced cities and states to retrofit policy around their business models, investors had discovered a new superpower: you don’t have to predict markets if you can literally just legislate them!

In other words, don’t have to be lucky or “predict the future” anymore; you only have to consolidate power and leverage. And that leverage came in four forms:

Narrative, Network, Regulatory, Industrial.

1. Narrative Leverage

If risk can’t be reduced, it should at least be rebranded. And boy, did Big Venture discover the power of stories as investment policies. By shaping the imagination of students, tinkerers, universities and eventually the political class ( through podcasts, essays, and in-house think tanks) they redefined venture as a moral project rather than just a financial one.

A16z’s Future podcast, Marc Andreessen’s viral essay “It’s Time to Build,” and Katherine Boyle’s American Dynamism thesis all exist to largely do one thing: to rebrand founders as civic heroes instead of profit-seekers. Founders Fund immersed its portfolio in libertarian myth, Tolkein-style (Palantir and Anduril are the “defenders of the West” after all!). Even Sequoia began talking about itself in terms of being the backbone of national resilience, splitting itself into regional champions to match the geopolitics of power in the US and overseas. (Is this a good time to mention Shaun Maguire? No? Ok…)

2. Network Leverage

Next came coordination. When funds get too big to be “contrarian” alone, they started to syndicate power together.

The goal here is to invest so much into a few chosen winners, that the winners become too big to fail. So the same handful of Big Venture partners (at Sequoia, A16z, Founders Fund, Tiger, Coatue, etc) now move in tandem across deals, ensuring valuations, exits, and narratives all align perfect to deploy vast amounts of capital before, amazingly, exiting to another company or to the stock market at precisely the right time, whilst knowing that if the exit never comes, the government bailout will. This is ultimately a tactic of leverage, amongst themselves.

Add in the corporate and defense networks that have emerged (Microsoft with OpenAI, Palantir with the Pentagon) and you have what amounts to a distributed industrial policy executed by private capital!

Thus, and extremely importantly, the original VC mandate of market discovery was replaced by its new mandate of market coordination.

3. Regulatory Leverage

By the late 2010s, Big Venture had begun building impressive in-house policy machines. A16z was the real champion here, launching one of the most active crypto lobbying operations in the US. In 2021 it opened a full-time Washington office staffed with former Treasury and CFTC officials, taking lobbying as a form of a subcontracted service and turning it into an internal (and one of the largest) functions of the firm!

In doing so, they were essentially shaping the legal terrain before it solidified in a direction that disfavored their portfolios. a16z’s crypto policy frameworks (like “How to Build a Better Internet”) and white papers started to be regurgitated within draft legislation, while partners met with senators to frame Web3 as a matter of national competitiveness, not just a speculative finance asset class.

In practice, the lobbying ensures that the protocols and exchanges a16z backs are classified as “commodities” rather than “securities”, a distinction that is probably often overlooked but that is worth billions in regulatory treatment. (This is the difference between a16z Partners being “unbelievably good investors” and “undeniably going to jail”). When Gary Gensler’s SEC began tightening enforcement, a16z Crypto’s general counsel, Miles Jennings, published a multi-part series arguing that “innovation and compliance can coexist”, effectively drafting the alternative rulebook in plain sight, online. For the record, Gensler is now gone, but Jennings is not. Take from that what you will.

This regulatory strategy worked, unsurprisingly. By embedding itself in the policymaking process, these funds blurred (deleted) the line between a regulator and those being regulated, turning legal ambiguity into their unbeatable source of alpha.

4. Industrial Alignment

Finally, the ultimate source of certainty for their portfolio growth: government demand.

When Big Venture realized that shitty consumer apps and products couldn’t absorb their massive amounts of capital (no amount of billions of dollars made people want to wear Allbirds), they moved into the strategic industries of AI, defense, energy, semiconductors, etc.

The thinking is something like — given that markets are unpredictable, why not allocate the money where the customer never goes bankrupt. The government! Or in other words: sell shovels to the miners.

Palantir did a pretty good job with perfecting this, by turning its long courtship of the US and UK government departments into perpetual procurement machines. Anduril embedded directly into Pentagon programs and border contracts, marketing itself as “defense tech that looks like software.” OpenAI wrapped itself around federal AI strategy, positioning “safety alignment” as a considerate policy partnership.

And there are countless more examples: SpaceX and Tesla proved that nothing helps a company grow like a government that is willing to pay for “competitive edge”. SpaceX built NASA’s rockets and launched the Pentagon’s satellites, while Tesla turned decarbonization subsidies into its primary growth engine (while its balance sheet was floated on the back of US and EU climate policy).

So what began as venture capital investing in innovation has essentially become a different animal altogether: venture capital contracting for sovereignty.

The Venture-State Symbiosis

By this point, the system had clearly become self-referential, in that capital no longer needed to chase opportunities because it was already manufacturing the conditions for it. (This, ironically, is exactly the role of the government!).

So each turn of the cycle made the relationship between the venture megafund and the state tighter, but also increasingly necessary:

• Huge megafunds start to depend on policy;

• policy likewise then starts to rely on megafunds;

• both policy and megafunds then rely on certainty;

• and having certainly means you can be a bigger megafund or a larger government!

This is the feedback loop of the the public-private mechanism that now underwrites the entire innovation economy. The VC funds need the government, and the government needs the VC funds.

Why? Well…

Governments need venture funds to perform innovation theatre: to recreate the optics of agility, and to give the illusion of progress through the “builder optimism” that these bulging bureaucracies will never achieve on their own.

Venture, meanwhile, needs governments to give them the risk absorption they need: to guarantee the markets act accordingly, to fund the infrastructure they are backing, and to convert high volatility into high returns.

In short, each provides what the other lacks! Thus the venture–state symbiosis that emerges is a closed ecosystem of power. Consider the interchangeability of the following:

• Public money OR private runway?

• Regulation OR competitive moat?

• Procurement OR exit strategy?

• Narrative OR national policy?

The result is a new kind of developmental model that I call venture developmentalism, where the tools of capitalism serve as extensions of industrial strategy, and industrial strategy doubles now acts as a form of price and value protection of VC assets.

In creating this symbiosis, the venture industry and the state locked themselves into a permanent feedback loop, whereby capital began designing policy to protect its returns, and policy began depending on capital to outsource its innovation. The loop stabilized and institutionalized, and it eventually crystallized into what we now live inside of.

Therefore innovation, which was once a much loved by-product of actually taking risk, is now the output of coordination. Meaning that stimulus packages, subsidies, and “strategic technology initiatives” eventually started to flow into the portfolios of the same half-dozen megafunds. And going the opposite direction, every new “builder manifesto” eventually flows back into legislative offices.

So what about the risk, I hear you ask? Did it just disappear? VOOSH, gone? Good question! No. It certainly hasn’t disappeared. The risk-reward model still exists, but it has simply been nationalized.

What was once venture capital has evolved into venture governance, an arguably more lucrative asset-class; creating an elaborate mechanism that secures the future, having long forgotten how to discover it. And so by 2020, the venture capital industry had learned the oldest trick in the books that investment banking and hedge funds had learned long before it: if you can’t predict the future, write the laws that shape it. Or… get out of the market.

Venture Developmentalism as Statecraft

What began as a feedback loop has now simply morphed into our existing political economy system. The line between the investor and the policymaker (or indeed between the tech company and the state, as I wrote about last week) has effectively vanished.

Starting as a way for Big Venture to stabilize its own returns, venture developmentalism has moved further along, turning into an actual form of governance. In an irony of all ironies, private capital now performs the functions of the state, while the state performs the functions of private capital! And the resulting outcome is a political economy in which innovation, and hence the direction of our lives that are underwritten by it, are no longer shaped by carefully-considered government policies but by portfolio constructions.

Hence, the American government no longer needs to fund or regulate innovation, but merely outsource it to its own financiers. This includes everything from energy to defense to AI, where federal programs can no longer be considered the great public initiatives that they once were, and act more as co-investments in the portfolios of Big Venture.

[This, incidentally, is the focus of my current research: how the logic of venture developmentalism (born in Silicon Valley) mirrors the industrial strategies of the Chinese developmental state, where private enterprise and government co-evolve to produce national capacity. In both systems, the thin line between innovation and governance becomes even thinner, and the market becomes the entity through which state power is exercised.]

And those same funds, by (1) shaping the narratives, (2) writing the policy drafts, and (3) staffing the advisory boards, govern the direction of that spending in return:

• OpenAI: Valued above $500 billion, its lifeline depends on federal AI co-funding to help finance or fast-track data-center construction, citing AI’s “strategic importance”.

• Tesla: Its market dominance would be impossible without billions in EV tax credits, emissions-trading schemes, and clean-energy subsidies embedded in US and EU climate policy.

• SpaceX: The physical embodiment of the venture–state merger, whereby it operates a quasi-sovereign communications network via Starlink, now essential to Western military operations in Ukraine.

• Anduril: The defense unicorn which secured billion-dollar Pentagon contracts before proving traditional product-market fit.

The result is this somewhat hybrid elite fluency by government officials and investors in both term sheets and political talking points.The people in the government and in venture capital have become one and the same! (A short list, as I’m probably missing a ton):

• David Sacks, for instance, moves seamlessly between (bad) podcast punditry, political fundraising, and venture syndicates, treating the White House as another portfolio company that he, and only he, can optimize.

• JD Vance: Y Combinator graduate, Peter Thiel protégé, now Vice President, sitting on committees overseeing the very industrial policies that enrich his own backers.

• Elon Musk: a private investor and founder who supplies national infrastructure (space, satellites, electric grids, AI) while openly screaming orders at the heads of state.

• Scott Kupor, a16z’s longtime managing partner, was nominated to head the US Office of Personnel Management (the agency that effectively controls the federal workforce).

• Jacob Helberg, the husband of famed Khosla Ventures managing director Keith Rabois, is serving as Under Secretary of State for Economic Growth, Energy, and the Environment.

In this world, the Big Venture investor no longer has to bet on the market — a game for losers — instead getting to manage the economy’s future on behalf of it. And as such, the tools of governance (procurement, subsidies, regulation) are indistinguishable from the tools of venture (seed funding, scaling, exit).

How clever!

So when an administration wants to rebuild American industries, it calls the same people who fund the startups (because these people rebuilding and funding are the same people). Similarly, when venture funds want guaranteed returns, they wrap themselves in the language of national security, competitiveness, or “abundance” to move closer to the White House which grants these outcomes (again: the same people!).

This, incidentally, is what replaces the old neoliberal divide between public and private entities.

The so-called Venture–State has come out on the other end of decades of financial deregulation as a single organism with two heads: one that talks about disruption endlessly, the other signing the checks for the same. But make no mistake, this is the same entity! Because now, most profitable asset class of the twenty-first century isn’t high-risk technology, it’s certainty, jointly manufactured by both capital markets and the government, then sold back to the public as “venture capital.”

Big Venture can otherwise be thought of as a distributed arm of state capacity built out of private capital.

You can trace the shift cleary through three eras:

1. Venture Capitalism (pre-2008)

   • Alpha driven by: Risk and discovery.

   • Example: Early Google, Genentech, small funds, asymmetric bets.

   • Purpose: Generate outsize returns on investment.
     

2. Venture Developmentalism (2008-2020)

   • Alpha driven by: Coordination under the state.

   • Example: Uber, Airbnb, figuring out how to exploit regulatory grey zones while riding zero interest rate liquidity.

   • Purpose: Stabilize returns generation.
     

3. Venture Mercantilism (2020-onwards)

   • Alpha driven by: Integration with policy and industrial strategy.

   • Example: Anduril, Palantir, OpenAI, combining private profit with global government mandates.

   • Purpose: Stabilize hard power generation.

You’ll notice from this list that we’re now living squarely inside this final phase of what I call Venture Mercantilism.

This is essentially where the fusion of capital and state is no longer experimental but institutionalized and quasi-permanent. It’s where Big Venture no longer cares about scaling markets (where risk lives), and focuses instead on owning the entire governance platform (like democracy), which is quite a step up in ambition of its previous roles! And in our current venture mercantilist epoch, Big Venture funds don’t even operate like Big Venture funds at all. Rather their modus operandi is in distributing capital in line with national priorities, not really giving a shit about returns, but only wishing to secure entire axes of global power. (More on this soon).

So while Venture Developmentalism was about securing certainty at home such that it stabilized returns by aligning with national policy, Venture Mercantilism, by contrast, projects that logic abroad through foreign policy and wars, while widening its goals to include power stabilization.

Big Venture is now using capital, technology, and supply chains as instruments of geopolitical power. You can see it in Peter Thiel’s Anduril which exports automated defense systems to US allies; in Palantir whose platforms underpin NATO intelligence and European security infrastructure; and in SpaceX’s Starlink, which chooses who gets access to communication networks in contested regions, and when, and for how long. Even venture bets on semiconductors, AI chips, and rare-earth supply chains now function as strategic tools in the US–China rivalry.

Strategic Implications

So what does all of this mean? What’s next?

If we accept that Big Venture and the state have become the same thing, then we’re no longer living in an entrepreneurial economy but one that is purely managed; a system where private capital no longer goes hunting for risk but simply allocates certainty on behalf of the state.

(And this, by the way, is precisely why I am researching the concept of Venture Developmentalism with relation to the growth of the Chinese economy, led by socialism!)

Hence you can see that the very underpinnings of venture has inverted, and that the goal is no longer to discover new markets but to secure existing the markets that hold competitive power through policy, marketing narratives, and procurement.

The impacts of this are many but consider the following:

1. Policy capture has replaced market risk.
Returns now depend on embedding the fund within national priorities, and not about taking on risk. This is why you’ll constantly hear the biggest funds telling founders: “We invest at the earliest stages; but also not at your early stage.” The best-performing funds aren’t the ones that predict consumer behavior, they are the ones that pre-write the regulation and achieve early industrial alignment (defense, AI, energy, semiconductors), which has become the new product–market fit.

2. Innovation itself has been securitized.
What once chased risk and discovery has become an asset class with guaranteed liquidity. Defense and chips dominate because they have state demand curves baked in, which has nothing to do with creativity or innovation. Again, this is why I spent two years telling anybody who would listen to me that a much better fund model for a VC is actually one that nearly exactly mirrors what we had with mortgage-backed securities! Because every startup now functions like a bond, and every breakthrough is a derivative of industrial policy!

3. The old “military–industrial complex” is now the “Big Venture–industrial complex”.
Other than a change in name, the mechanisms are identical: Procurement = a startup’s exit strategy; fiscal stimulus = the new venture round; and “abundance,” “resilience,” “national competitiveness” = the new branding du jour.

4. Power has been consolidated into a new hybrid elite.
Here we see the emergence of a new technocratic-aristocratic class that is fluent in the languages of both fund liquidity and national legislation, and which can actively lobby while discussing launch metrics. These bureaucrat investors manage both sides of the balance sheet, from public policy during one administration, and private profit during the next administration. You simply cannot distinguish the entrepreneur from the policymaker, or the firm from the state anymore, because they are only different departments of the same Big Venture fund.

But What About Little Venture?

Here’s the shitty endnote most people reading this won’t want to absorb.

If you’re a venture fund that isn’t doing any of this (no policy alignment, no industrial positioning, no narrative or regulatory leverage), then you are not in the same business as Big Venture. You’re in venture capital, the original game of chasing founders, markets, and luck.

Said another way, you’re in the nostalgia business. While Big Venture manufactures outcomes, you’re literally just buying lottery tickets, and getting paid 2% a year to do that.

This is why the return distribution in VC looks deranged even by power-law standards!

A tiny slice of firms sits on policy-backed certainty and captures most of the gains, massively outperforming the market (because if you are the one writing the revenue checks for your portfolio companies, there’s something wrong if you’re not winning!), while the long tail does “venture capital” in the old sense: sourcing founders, haggling over terms, hoping markets behave accordingly.

• Big Venture shapes the game and collects steady wins.

• Venture capital thinks it’s finding alpha, but really it’s just getting played by the house.

Most funds don’t lose (by which I mean: they do not beat the benchmark, or even the S&P 500) because they’re foolish; they lose because they’re lacking the new instruments that generate returns, by which I mean:

• They mistake deal flow for the ability to generate alpha;

• They optimize for access to founders instead of access to the political class

• They create internal “platform teams” but not policy teams;

• They perfect demo days but never build procurement mechanisms;

• They post Substack think-pieces but don’t turn those arguments into draft legislative language for government agencies.

So in an economy where there is political and institutional capture, these types of investment activities can no longer be called investing (although, recreational risk, maybe…). And this is the real fork in the industry! When I meet a VC, it takes me less than three seconds to figure out which camp they belong to:

On one side: outcome writers (funds that coordinate narrative, network, regulation, and industrial demand into a single machine that converts government priorities into a fund’s returns).

On the other: degenerate gamblers (funds that keep playing the 2003 game on a 2025 chessboard). There is very little middle left because the middle requires a market that no longer exists.

Sadly, many VCs aren’t even aware of this shift yet. Because for over a decade, free money lifted all boats (by which I mean exit valuations) during an era when SPACs were used to offload really, really shitty portfolios onto the retail investors. So for a very long time, even the smallest and most ill-equipped VCs have thought they were playing the same game as Sequoia or a16z. When in reality, they were still losing money relative the S&P (which does not have 2% management fees).

For the more financially literate readers, consider this: Big Venture has been generating alpha this whole time, meanwhile venture capital is barely existing on artificially cheap beta.

What’s Next for Venture?

Venture capital was once an industry that swapped risk for upside on future outcomes. But what does an industry built on risk do when there’s none left to take?

Here are some general thoughts that will play out over the coming years:

1. Polarization will intensify
The bifurcation between venture capital and Big Venture can only become a wider gap. A handful of policy-embedded funds will continue manufacturing outcomes inside the protective walls of government buildings. Everyone else will be pushed outwards, forced to specialize in niches too small or too weird for Big Venture to care about. Expect a surge in micro-funds, “mission-driven” capital, and “outsider” ecosystems that operate deliberately outside the policy machine. These will be the last true laboratories of discovery! Small and ideological, but… very fragile.

2. The frontier will move to the periphery.
As the US and its allies turn innovation into an instrument of power, the next real venture frontiers will appear in the gaps between empires of regions, technologies, and networks that happen to be too politically awkward or underregulated to be absorbed. This might mean frontier biotech, decentralized infrastructure, or emerging-market ecosystems where venture developmentalism can’t easily reach. These small gaps can only be reached with small funds, which is why some mico or solo-GP venture capital funds are actually still generating returns (for now). Ironically, the next Silicon Valley won’t look like Silicon Valley at all.

3. Venture will become infrastructural.
For Big Venture, the path is already clear: more integration. The funds that survive will look increasingly like sovereign entities. By which I mean permanent capital vehicles attached to industrial policy, defense budgets, and national strategy. Big Venture itself won’t end per se; but it will ossify into governance structures and become a permanent feature of how states allocate innovation risk (and money).

The paradox is that this outcome might be venture’s final success. It set out to conquer risk and… it did! But in doing so, it killed the condition that made it exciting in the first place.

The next phase of venture then, if it’s to have one (and I really question this), will depend on who is brave (or reckless?) enough to reintroduce uncertainty into a system that’s spent the last twenty years trying relentlessly to eradicate it.

I suppose somebody’s gotta roll the dice though….